October 28, 2016 / 4:35 PM / in a year

Britain's FTSE edges higher as IAG boosts travel stocks

* FTSE 100 up 0.1 pct

* IAG soars to 4-month high

* RBS end lower in choppy trade after results (Recasts, adds detail and quote, updates prices at close)

By Kit Rees and Alistair Smout

LONDON, Oct 28 (Reuters) - Britain’s top share index edged higher on Friday, led by a rise in airlines following an earnings update from IAG, though banks were also in focus after a busy week of earnings that saw the sector hold near its highest level of 2016.

The FTSE 100 closed 0.1 percent higher at 6,996.26 points, though it was down 0.3 percent for the week.

British Airways owner IAG was the biggest gainer on the blue chip index, rising nearly 6 percent to a 4-month high after hiking its dividend as it posted in-line results.

“International Consolidated Airlines Group has been buffeted by foreign exchange headwinds and air traffic control strikes but improved its unit revenue performance in the third quarter,” Russ Mould, investment director at AJ Bell, said in a note.

Sector peer easyJet also rose, up 3.4 percent, while cruise operator Carnival climbed 3.3 percent higher.

The banking sector, however, was once again in focus after Royal Bank of Scotland reported earnings.

The lender fell after a strong start to the session and ended down 1.2 percent.

While operating profit beat consensus expectations, there were significant costs incurred for misconduct and restructuring which saw it post a loss that was twice as big as analysts had expected.

“It faces headwinds, including an unacceptably low return on equity for many of its domestically focused businesses, and the potential for fines,” said Veronika Pechlaner, equity fund manager at Ashburton.

“It’s a small beat, but it doesn’t change the story a whole lot, especially as they remain very cautious on the outlook.”

Well-received results from Barclays and Lloyds had buoyed the FTSE 350 banking sector to its highest level for 2016 in the previous session. However, the sector retreated 0.1 percent after RBS’ update.

The sector posted an 8.5 percent rise this month, however, with better than expected earnings in the United States also helping to fuel gains.

Among other fallers, Intu Properties was down 1.7 percent after HSBC cut its target price on the stock, while analysts said pharma firms, such as Shire and Hikma , were under pressure as the U.S. presidential election draws nearer.

The mid-cap FTSE 250 also closed slightly higher, up 0.4 percent, though a series of profit warnings and large falls from firms such as Berendsen and Cobham this week saw the midcaps post their biggest weekly loss since July, down 1.6 percent.

The top riser, however, was Elementis, up over 11 percent to its highest level since December 2015 and posting its biggest one day rise in six and a half years after its results. (Reporting by Kit Rees; Editing by Alison Williams)

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